This month, Money Matters BVI is working to
raise awareness of the Foreign Account Tax Compliance Act (“FATCA”),
particularly for BVI citizens and residents who are also U.S. taxpayers and
have reporting obligations to the U.S. This article seeks to summarize the
essential guidance needed for the relevant individuals to comply with FATCA.

You don’t have to be living or domiciled in the U.S. for
FATCA to apply to you. In fact, FATCA was specifically created to reach U.S.
citizens who hold accounts and other assets off American shores. That’s right.
If you live in the BVI and have ties to the U.S., you may be required to report
yearly your offshore accounts and other assets. In addition, non-U.S. financial
institutions in the BVI are required to search their databases and report the
identities of all U.S. citizens holding accounts and other assets with them. That
means, even if you are not self-reporting your accounts and other assets, the
banks and companies that you use to manage your assets are reporting it on your
behalf to the Internal Revenue Service (“IRS”), and the IRS will expect you to
pay your required taxes. FATCA compliance begins first with simply knowing if
and how it applies to you, so take some time and ask yourself these 3
questions:

Does FATCA apply to me?

It’s important for
persons to first understand if and how the FATCA legislation applies to them. FATCA
applies to persons who are considered “U.S. taxpayers”. Specifically, it
applies to you if you:

Are considered a U.S. resident alien;

Hold a U.S. Passport; or

Hold a U.S. green card; and

Hold bank accounts overseas (off American shore);

Possess other assets held overseas; or

Share bank accounts or other assets overseas with U.S. citizens.

What threshold do I have to meet to be
required to file?

If FATCA applies to you, you must file form 8938, titled
“Statements of Specified Foreign Financial Assets.” This form can be filed with
the IRS either as an individual, or jointly with your spouse, if you are married.
Form 8938 is required to be filed, whether as an individual or jointly, by the
last day of the US tax year, a date which changes annually. If you choose to
file your taxes as an individual, you are required to file if your foreign
holdings are worth $200,000 or more on the last day of the tax year, or your
foreign holdings are worth $300,000 or more at any time during that tax year.
If you are married and you and your spouse choose to file jointly, you are
required to file if your joint foreign holdings are worth $400,000 or more on
the last day of the tax year, or if your joint foreign holdings are worth
$600,000 or more at any time in that tax year. It’s important for you to have a
clear understanding of where you lie in regards to this legislation. If you are
required to fill out the requisite form(s) on FATCA’s website and fail to do
so, there can be severe penalties imposed on you.

What happens if I meet a threshold but do not
report to the IRS?

If you meet any of the above thresholds, but fail to file
FATCA guided form 8938 on an annual basis with the IRS, you will have an
initial penalty of $10,000 imposed upon you. You will be notified of your
unfiled taxes, and will also receive what is called an understatement, which
indicates the taxes required to be shown on the tax return for the particular
year. On this understatement, you will also have a 40% penalty imposed on your
unfiled taxes. After being notified by the IRS, if you continue to fail to
file, a penalty of up to $50,000 can be imposed. This is obviously not ideal, and
therefore it’s important to understand your obligations and how to avoid these
penalties entirely by being compliant with the FATCA legislation.

It’s extremely important that
persons understand their obligations according to the laws we all live by, and
Money Matters BVI seeks to aid in facilitating this understanding in our BVI
community. It’s important for all persons to understand their status regarding
FATCA compliance, and taking any one thing away from this article is a step in
the right direction. For further information about the FATCA obligations of
individuals and foreign financial institutions and non-financial foreign
entities, visit https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca.